Should I refinance or stay put

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Topic Author
Streptococcus
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Joined: Thu Jan 03, 2013 12:17 am

Should I refinance or stay put

Post by Streptococcus » Wed Mar 25, 2020 8:30 am

My family was planning on moving across the US (for a new job) when the whole COVID-19 crisis started. And before our move, we planned on selling one of our rentals and our primary home but now with the crisis, there is a chance we won't be able to sell for a while and I'm trying to make contingency planning.

So my question is: Should we refinance or make no change?

Here are the data:
Primary home is worth about 390K; current mortgage balance is 166K so we have a lot of equity in it. It is a 15 year mortgage.
Rental home is worth about 135K; current mortgage balance is 74K; It is a 30 year mortgage. the last tenants vacated at the end of February as we planned on selling. It is currently on the market. It cashed flowed beautifully, about $500 a month.
The reason why I want to sell it is because we have a line of credit with 80K balance that we used to finance and rehab our properties and the goal was to refinance the property to pay off the line of credit. interest in LOC is about 7% which will amounts to about $750 a month, starting next month.

Based on current situation in April 2020 we will pay:
Mortgage primary home $2306 = 1170 is principal + $1136 interest/tax/insurance
Mortgage rental 723 = 56 dollars principal and 667 interest
Interest LOC is $750 a month
So total expense is $3779 of which 1226$ are principal and $2553 are interest
This is the scenario if we stay put. We are leaving the State in 2 months so we plan on putting our home and rental on the market but who knows if that will be possible with the economy, social distancing and lockdowns.

Here's what our bank is offering:
Refinance my house at $252,000 with a new 30 year mortgage instead of my current 15, in order to pay off the expensive LOC that costs us $750 a month in interest.
new rate would be 4.5 instead of my current 3.5
New monthly payment would be $1911 instead of 3065
The refinance would cost me $2500-3000. At the same time, I will still put the house on the market in 2 weeks but if I cannot sell due to the economy, I save $1100 a month. In this scenario I would keep the rental separate. We can also rent our home if we want to. We have a prospective tenant who would pay $2000 a month. And we can rent our rental again if we need cannot sell it.

What would you do?

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grabiner
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Re: Should I refinance or stay put

Post by grabiner » Wed Mar 25, 2020 12:27 pm

Do you have poor credit? 4.5% is a high rate for a refinance on a primary home, even for a cash-out.

It might be better to keep your existing mortgage (or refinance it to a 15-year without a cash-out if you can get a lower rate), and take out a HELOC against the rest of your home equity. The advantage of doing it this way is that you can pay off the HELOC when you sell the rental, and keep borrowing the rest of the money at your current rate.
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Topic Author
Streptococcus
Posts: 377
Joined: Thu Jan 03, 2013 12:17 am

Re: Should I refinance or stay put

Post by Streptococcus » Wed Mar 25, 2020 1:06 pm

grabiner wrote:
Wed Mar 25, 2020 12:27 pm
Do you have poor credit? 4.5% is a high rate for a refinance on a primary home, even for a cash-out.

It might be better to keep your existing mortgage (or refinance it to a 15-year without a cash-out if you can get a lower rate), and take out a HELOC against the rest of your home equity. The advantage of doing it this way is that you can pay off the HELOC when you sell the rental, and keep borrowing the rest of the money at your current rate.
My fico score is 777. I bank at usbank and they have often offered poorer rates than other local banks. I already have a HELOC that I’m trying to get rid off as the interests will cost me $750 a month starting April. I was trying to refinance to get rid of that expense as I plan on selling the house in 2 months.

To summarize, The only reason why I’m trying to refinance is as a plan B in case the economy keeps going down, money dries up and I’m stuck with the house, say for a year, after I move out of State. The home mortgage and HELOC interest would cost me less.

But if I sell the house and rental in the next 3 months and pay off the HELOC, then the refinance would have been more expensive.

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gr7070
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Re: Should I refinance or stay put

Post by gr7070 » Wed Mar 25, 2020 2:35 pm

Do you still expect to move? If yes, don't refi.

This assumes you have appropriate EF; for rental, too.

If the move was something your family wanted I can't fathom Corona-scare changing my mind and I'd let the market dictate the sales.

I would likely aggressively price the primary home and if the rental had always been an appropriate rental there's no reason it can't stay one for the time being.

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Streptococcus
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Re: Should I refinance or stay put

Post by Streptococcus » Wed Mar 25, 2020 2:58 pm

gr7070 wrote:
Wed Mar 25, 2020 2:35 pm
Do you still expect to move? If yes, don't refi.

This assumes you have appropriate EF; for rental, too.

If the move was something your family wanted I can't fathom Corona-scare changing my mind and I'd let the market dictate the sales.

I would likely aggressively price the primary home and if the rental had always been an appropriate rental there's no reason it can't stay one for the time being.
We still expect to move. I appreciate the advice on aggressively pricing the house. As per the rental, we can revert back to renting, even at a discount to pay the bills if the skies were to fall.

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